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SEASOR v. LIBERTY MUT. INS. CO.

August 28, 1996

DANEAN SEASOR; LATESHA CONEY; AND JANEICE CONEY
v.
LIBERTY MUTUAL INSURANCE CO.



The opinion of the court was delivered by: BRODERICK

 Broderick, J.

 August 28, 1996

 Before the Court in this action brought pursuant to Pennsylvania's Bad Faith statute, 42 Pa.C.S.A. § 8371, and Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("CPL"), 73 Pa.C.S.A. § 201-1, et seq., is defendant Liberty Mutual Insurance Co.'s ("Liberty Mutual") motion for summary judgment and Plaintiffs' response thereto. Subject matter jurisdiction is based on diversity of citizenship. The parties agree that Pennsylvania law controls the determination of this action. The issue before the Court is whether Plaintiffs, who were injured in an accident involving a rental vehicle in which they were passengers, can bring a claim for bad faith pursuant to 42 Pa.C.S.A. § 8371 and a claim under the CPL against Liberty Mutual. Because the Court has determined that Plaintiffs are not "insureds" under the Liberty Mutual insurance policy and that this policy prohibits an assignment of its "insured" Bessie Covington's right to bring claims against Liberty Mutual for bad faith and for violations of the CPL, defendant's motion for summary judgment will be granted.

 I. Background

 Plaintiffs Danean Seasor, Latesha Coney and Janeice Coney ("Plaintiffs) were three of nineteen passengers in a rented Ford vehicle, which, on or about August 5, 1991, was involved in an accident in Gilford County, North Carolina. All nineteen passengers were injured. Bessie Covington, who had rented the vehicle from Marple Ford Leasing on August 2, 1991, was driving at the time of the accident. The rental agreement shows that only Bessie Covington and Reginald Covington were authorized to drive the rental vehicle.

 The vehicle was insured under an automobile liability policy issued by Liberty Mutual Insurance Company ("Policy") to its named insureds -- Marple Ford Leasing, Ford Rent-A-Car System and Lincoln-Mercury Car Rental System. The policy, effective October 1, 1990 to October 1, 1991, provided liability coverage in the amount of $ 100,000.00 per person/$ 300,000.00 per accident. The policy also contains an endorsement entitled "Pennsylvania Basic First Party Benefit" (the "Endorsement") which provides medical expense benefits in the amount of $ 5,000.00 per insured, as mandated by Pennsylvania's Motor Vehicle Financial Responsibility Law ("MVFRL"), 75 Pa.C.S.A. § 1701, et seq.

 In the Section II of the Policy -- Liability Coverage -- "insured" is defined as follows:

 1. WHO IS AN INSURED

 
The following are insureds:
 
b. Anyone else while using with [the named insured's] permission a covered auto you own, hire or borrow . . .

 Both parties agree that Bessie Covington is an "insured" under the definition provided in Section II of the Policy. Bessie Covington rented the vehicle in her name and was authorized to drive the vehicle. The parties dispute, however, whether Plaintiffs, as passengers in the rental vehicle, are "insureds" under the definition contained in Section II of the Policy. The Court will address this issue in more detail below. In the Endorsement, the definition of insured includes "any person while occupying a covered auto." Because Plaintiffs were passengers in the vehicle, they qualified as "insureds" under the Endorsement for the purpose of receiving first-party medical benefits. There is no dispute that Plaintiffs received these benefits.

 Liberty Mutual settled the liability claims against Bessie Covington for the personal injuries of all the passengers in the vehicle except these three Plaintiffs. The settlement of these personal injury claims exhausted the policy proceeds -- Liberty Mutual distributed $ 299,999.00 of the $ 300,000.00 available under the Policy to sixteen of the nineteen injured passengers. Thereafter, Plaintiffs instituted a negligence action against Bessie Covington in the Court of Common Pleas of Philadelphia County. Liberty Mutual accepted the defense of Bessie Covington in the state court action, and after a three day trial, a jury returned a verdict in favor of the three Plaintiffs in the amount of $ 84,000.00. After the verdict was entered as a judgment against Bessie Covington, Plaintiffs began pursuing an assignment of rights from Bessie Covington. On or about March 21, 1996, during the pendency of the instant action, Bessie Covington granted an assignment to Plaintiffs.

 The crux of Plaintiffs' complaint in the instant action, brought on June 29, 1994, is that Liberty Mutual's failure to include them in the settlement of the liability claims against Bessie Covington constituted bad faith. Plaintiffs maintain that they notified Liberty Mutual as to their intention to present personal injury claims against Bessie Covington, and that Liberty Mutual excluded them from the settlement. As set forth above, Plaintiffs received first-party medical benefits. Their allegations of bad faith are limited to Liberty Mutual's alleged conduct investigating and settling the liability claims made against Bessie Covington. Liberty Mutual contends, on the other hand, that as part of their claims investigation, it contacted Plaintiffs inviting them to submit liability claims but received no response.

 In their motion for summary judgment, Liberty Mutual contends that Plaintiffs are not "insureds" under the Policy and, therefore, cannot bring a bad faith claim against it pursuant to 42 Pa.C.S.A. § 8371. Liberty Mutual contends that Plaintiffs also cannot bring a claim against it under the CPL because the CPL only provides a private right of action to purchasing consumers of insurance policies. Liberty Mutual maintains that the assignment Plaintiffs obtained from Bessie Covington is invalid under the Policy's nonassignment provision. Plaintiffs maintain that they are "insureds" under the Policy and that the assignment they obtained from Bessie Covington, Liberty Mutual's "insured", permits them to bring this bad faith action.

 II. Discussion

 A. Plaintiffs are not "Insureds" for the purpose of bringing a Bad Faith Action Pursuant to 42 Pa.C.S.A. § 8371

 Plaintiffs assert that they are "insureds" under the Policy. Pennsylvania law makes clear that the insurer's duty to act in good faith belongs to those persons who qualify as "insureds" under the policy. See Dercoli v. Pennsylvania National Mutual Ins. Co., 520 Pa. 471, 554 A.2d 906 (Pa. 1989). Pennsylvania's bad faith statute provides:

 
In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court ...

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